Measuring the impact of option market activity on the stock market: Bivariate point process models of stock and option transactions
AbstractI apply the bivariate Autoregressive Conditional Duration model of Engle and Lunde [2003. Trade and quotes: a bivariate point process. Journal of Financial Econometrics 1, 159-188] to stock and option market transactions. The first model uses option trades and stock trades. Shocks to option trade/option trade durations have a significant impact on option trade/stock trade durations. Higher implied volatility, larger stock and option market order imbalances, larger stock trades, larger spreads, smaller depths in the stock market and faster trading in the stock and option markets are all associated with faster trading in both markets. In the second model, option trade/option trade timing leads option trade/stock quote timing and several information-related stock and option market covariates impact the expected inter-market event durations.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Financial Markets.
Volume (Year): 12 (2009)
Issue (Month): 1 (February)
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Web page: http://www.elsevier.com/locate/finmar
Autoregressive conditional duration Informed trading;
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